Banking and Finance Law Daily FDIC adopts final rule on brokered deposits, interest rate restrictions
Wednesday, December 16, 2020

FDIC adopts final rule on brokered deposits, interest rate restrictions

By Charles A. Menke, J.D.

A combined final rule establishes a new framework for regulating brokered deposits and revises the FDIC’s methodology for calculating the national rate and national rate cap.

The Federal Deposit Insurance Corporation has adopted a final rule revising its regulations relating to brokered deposits and to interest rate restrictions that apply to less than well capitalized insured depository institutions (FIL-113-2020). For brokered deposits, the final rule establishes a new framework for analyzing certain provisions of the "deposit broker" definition, including "facilitating" and "primary purpose." With respect to interest rate restrictions, the final rule amends the methodology for calculating the national rate and national rate cap for specific deposit products. The final rule takes effect April 1, 2021, although full compliance with the revised brokered deposit regulation is extended to Jan. 1, 2022. The FDIC also issued a Brokered Deposit Fact Sheet and an Interest Rate Restrictions Fact Sheet, as well as a staff memorandum on the final rule.

Brokered deposits. With respect to brokered deposits, the final rule:

  • clarifies when a person meets the "placing deposits" and "facilitation" parts of the deposit broker definition;
  • provides that a person with an exclusive deposit placement arrangement with one IDI does not meet the "deposit broker" definition;
  • provides that the "primary purpose" exception will apply when, with respect to a particular business line, the primary purpose of the agent’s or nominee’s business relationship with its customers is not the placement of funds with depository institutions;
  • designates a list of business relationships that meet the primary purpose exception;
  • requires written notice for certain designated exceptions;
  • allows entities that do not meet one of the designated business relationships to apply for a primary purpose exception;
  • restates that brokered CDs will continue to be considered brokered deposits; and
  • affirms that third parties that either place or assist in the placement of deposits with a primary purpose of encouraging savings will not qualify for the primary purpose exception.

Interest rate restrictions. The final rule’s revisions relating to interest rate restrictions applicable to less than well capitalized IDIs, amends the methodology for calculating the national rate and national rate cap for specific deposit products. Under the final rule, the national rate is the weighted average of rates paid by all IDIs on a given deposit product, for which data are available, where the weights are each institution’s market share of domestic deposits. The final rule further defines the "National Rate Cap" as the higher of: (1) the national rate, plus 75 basis points; or (2) for maturity deposits, 120 percent of the current yield on similar maturity U.S. Treasury obligations and, for non-maturity deposits, the federal funds rate plus 75 basis points. The "Local Market Rate Cap" is 90 percent of the highest interest rate paid on a particular deposit product in an IDI’s local market area.

Non-maturity deposits. The final rule also defines when non-maturity deposits are considered solicited or accepted for purposes of the brokered deposits and interest rate restrictions.

McWilliams statement. FDIC Chair Jelena McWilliams released a statement pointing out that the new framework for brokered deposits creates a more transparent and consistent regulatory approach and encourages innovation in how banks offer services and products to customers. Addressing the revision of the methodology for applying interest rate restrictions for banks that are less than well capitalized, McWilliams said that the final rule combines the FDIC’s original methodology for interest rate restrictions, in effect from 1992 through 2009, and the current methodology that has been in effect since 2010.

Brooks statement. Acting Comptroller of the Currency Brian P. Brooks said in a statement that "[t]he rule regarding brokered deposits helps modernize the concept of brokered deposits in ways that give consumers more choices and control over their financial decisions and promote innovation between commercial banks and the financial technology industry."

Brown criticism, ABA support. Senator Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, released a statement sharply criticizing the FDIC’s action contending that the final rule "undermin[es] what it means to be a bank" and "put[s] the hard-earned money of millions of Americans at even more risk during a global pandemic and economic crisis." The American Bankers Association, meanwhile, embraced the FDIC’s action. "Today’s final FDIC rule is an important step that recognizes that markets have evolved, and new technologies have changed the ways banks gather deposits and the ways bank customers access and manage their funds," said Rob Nichols, ABA president and CEO, in a statement released by the organization.

Companies: American Bankers Association

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